Anything that can be bought or sold is an economic good. Property rights are an attribute of that good that determines how that good can be used.
Let’s say there is a mousetrap. The mousetrap has value. It can trap mice. It has cheese that can be eaten. It can be used in other ways by someone creative. Well somebody or some group gets to decide whether and how to use it. That control is not the item itself. That control is a property of the item. That control is termed property rights.
Property rights are generally enshrined by the society or government. By defining the property rights, confusions can be avoided and the value of the good protected and even enhanced. The price of the good will now reflect both the intrinsic value of the good and the value of the property rights.
There are three main components to property rights.
- The right to use the good.
- The right to earn income from the good.
- The right to transfer the good to others, alter it, abandon it, or destroy it.
There are many types of property and property owners. Private property owners generally refer to individuals or select groups of people. Public property owners generally refer to larger groups such as governments.
Property rights are valued by highly diverse economic, political and legal thinkers. For example, John Locke (English philosopher), Adam Smith (father of capitalism), and Karl Marx (father of communism) all recognized the importance of property rights. Their ideal implementations of those rights differed, of course, but they all understood that strong property rights benefit both the individual and the society.
Property rights help discourage opportunism because it is harder to exploit a good protected by enforced property rights. Users will be less likely to exploit resources unsustainably or inefficiently as property is protected.
Have you ever been to a free rest stop where there is no toilet paper, the toilets are covered in filth and the plumbing is broken? The free exploitation of the bathroom has caused the rest stop to lose its value. This effect has been termed “tragedy of the commons”.
Property rights also lower costs by providing an efficient resolution for conflicts over resources.
There is substantial evidence that societies that strongly secure property rights and equality of opportunity enjoy broad economic prosperity.